How We Pick Stocks

How We Pick Stocks

We use a team approach — but not a committee approach — to select stocks. Currently three team members have the power to choose a portion of our model portfolio, on which many client accounts are based. (Accounts can be, and often are, customized.) We typically select a mixture of large-cap, mid-cap and small-cap stocks. Over the years our sweet spot has been small-cap and mid-cap value, a realm in which one can sometimes find opportunities not yet discovered by major brokerages or financial institutions.

We look closely at the trading activity of a company’s executives, which must be reported to the Securities and Exchange Commission. Other things being equal, we favor stocks that show insider buying and avoid those that show major insider selling. We believe that buying has greater predictive value than selling, and that trades by chief executive officers and chief financial officers are the most revealing.

Then we focus on a company’s balance sheet — its assets and liabilities. We believe that many investors focus myopically on earnings, especially recent earnings. But a strong balance sheet speaks volumes about a company’s soundness and ability to take advantage of opportunities that may arise.

Finally comes the challenge that is the hardest and most subjective — examining a company’s management and strategy. Here we believe that John Dorfman’s decades of experience as a financial journalist come in handy, helping him read between the lines of corporate statements and sometimes discern the true state of affairs, which may differ from what management seeks to portray.

Portfolios Tailored to Each Client’s Needs and Goals

After identifying promising securities, we undertake to meld them into coherent, customized client portfolios with an industry and sector balance that is right for current market conditions. Most of our client portfolios contain 20 to 30 common stocks. The majority of the stocks are from U.S.-based companies, with a sprinkling of stocks from Asia, Australia, Europe or Latin America.